RegTech Intelligence 
It will come as no surprise that Twitter has shunned the NASDAQ and chosen NYSE to host its IPO. Last year’s troubled Facebook IPO and a glitchy summer for the NASDAQ make the reasoning clear. But the NASDAQ is not the sole source of these technology problems, and Twitter is still far from guaranteed a smooth listing.
In fact, the NASDAQ has been partially exonerated for the failures of the Facebook listing after it emerged that Knight Capital had ignored dozens of error messages to submit more than four million trades from only 212 orders. However, this highlighted failures to test systems and safeguards on the parts of both the broker-dealer and the exchange. But the incompatibility of different systems and problems in the exchange of data will continue to pose a significant threat to market stability without further intervention.
Nevertheless, Twitter’s decision to partner with the NYSE is no doubt a huge blow for the NASDAQ which once had almost free reign over anything technological, and demonstrates the very real costs of not having these safeguards in place. So fearful is the NYSE of suffering the same damage to its reputation as the NASDAQ did during the Facebook IPO that it is conducting a ‘dry-run’ on 26 October, with the IPO to come sometime in November. During this time, trading firms will be permitted to test the robustness of both the NYSE and their own trading systems on a one-time basis.
But Twitter is only the latest in the line of high-profile technology companies to shun the NASDAQ; Linkedin, Yelp, and Pandora Media all turned to the NYSE when it came to their IPOs instead of the NASDAQ. Also, back in June, Oracle Corp decided to transfer its listing from the NASDAQ to the NYSE. But is the grass truly greener on NYSE’s side?
Another sizeable glitch occurred at the beginning of October which appears to have fallen by the way side: the NYSE itself had to suspend trading of many financial products owing to what was only described as ‘technical issues’, but resulting in the cancellation of all pre-market orders and the suspension of trading for an hour. In fact Standard & Poor’s ratings arm counted at least 24 exchange ‘glitches’ that mean that trades could not take place, or went through erroneously, worldwide in the last 18 months.
This problem is clearly not confined to a single exchange or company; it is a problem that exists across all exchanges. And as they get bigger and more complicated, with more clients and investors to serve, the problem is only going to be compounded. Ultimately, no IT system is guaranteed to be up one hundred percent of the time, and especially not one as complicated as a trading exchange. The question is: how do you deal with the downtime?
The SEC has set out its plans for change. In response to the huge NASDAQ outage in August, they and the NYSE have begun the unprecedented task of achieving much closer integration. The two exchanges are currently in the process of considering a system that involves each company running a backup of stock price data so that, should one go down, trades would be able to continue on the other exchange while the problem is fixed. This is a good solution, but unfortunately is confined to just two exchanges and does not take into account the wider range of problems that can occur.
From 12 September the SEC also gave markets a 60-day deadline by which to reach a consensus on a plan to address future technology problems. Again the SEC is focused merely on the two latest exchanges to have a problem and instead should be addressing a wider problem, symptomatic of a system that has grown too complex and too complicated for humans to manage. This is also exacerbated by the fact these companies are direct competitors and so have a vested interest in seeing each other lose business.
With so many glitches this year (the NASDAQ only being the highest profile), it is clear that something needs to be done soon. Other large scale technology IPOs are due to follow soon, such as China’s largest online retailer, Alibaba Group (a Chinese equivalent of Amazon). If future listings are not to go the same way as Facebook’s, system-wide action from international regulators is needed to tie-up these communication breakdowns.